Economic statistic of the week: how much different sectors pay in tax

Chapter 4 of Britain at the Polls 2010 brings this tax perspective:

From the early 1990s the City had sought to justify light-touch regulation and tax concessions by listing the many socio-economic benefits of finance … The most persistent of the City’s claims was that tax revenues from finance were a key source of funding for New Labour’s social programmes. But … over the 5 years from 2002 to 2007, tax receipts from finance totalled £153 billion and averaged just 6.7 per cent of government receipts. In the same period, manufacturing employed many more workers, who all paid taxes under strict pay-as-you-earn (PAYE) rules, so that this sector delivered twice as much tax revenue.

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11 Comments

  • I must admit to being shocked by this. Labour talked up the importance of the sector, and since coming to power the coalition have highlighted Labours too heavy reliance on this sector as a component of the financial crisis. Looking at this the figures don’t seem to back either up.

    It also calls into question whether Osbourne pitched the requirements on the banks too low.

  • I seem to remember Will Hutton pointing this out some time ago. You shouldn’t be surprised. Look how many MP’s come from a finance background. Look who is bankrolling the Tory party. None of the claims made by the City stand up to serious analysis. The financial crisis has shown us that democracy is little more than theatre. We are living in a plutocracy.

  • So it will take the banks nearly 30 years to repay the 850bn in support from their taxes; assuming they don’t find yet another “tax efficient” way to reduce this

  • @Simon McGrath
    “the same PAYE rules as any other job”

    Not quite that simple. There is not an elite who get such large cash sums in manufacturing, the majority of those will pay directly through wages and there is not the scope for the tax limiting measures those who get larger bonuses can (for example taking shares and using the massive pension allowances).

  • Liberal Neil 11th Feb '11 - 1:02pm

    There is a strong case to be made for more effective regulation, or for the regulators to do their job better.

    But comparing the overall tax take from the financial sector with that from the manufacturing sector isn’t a particularly strong way of making that case.

    It isn’t an either/or situation. A less successful financial sector doesn’t necessarily mean a more successful manufacturing sector.

    The key issue for me is how the Government maximises its tax take overall, and that means striking a balance between regulation, tax levels and incentives, and it may mean treating different sectors, which have differing levels of mobility, differently.

  • @Simon McGrath
    The limit on pensions has just been “lowered” to £50,000 per year. Slightly more than the average factory worker or manager could afford….

    Shares can be used to avoid some tax and if kept long enough can also (I think) avoid capital gains.

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